Today is the day—Britain’s referendum on Brexit. By today’s end, we will likely know whether or not the U.K. will stay in the Euro Union—and whether the EU structure remains solid.
The markets take the issue seriously. Stocks rallied Monday (with Treasuries falling sharply); investor concern about Brexit waned as the probability of the “for” vote winning declined. The decline of last week and the rally early this week both clearly indicate what the market would prefer. Read more about Should They Stay or Should They Go? 06-23-16
Flight to safety, caused by growth worries and the uncertainty surrounding the upcoming “Brexit” referendum, has been very pronounced recently, and even the dovish Fed statement couldn’t change the market mood. Government bonds, a traditional safety haven, climbed, with yields plummeting. At yesterday’s close, the benchmark 10-year T-note yield stood at only 1.6 percent, the lowest this month and, indeed, this year. Today, as bonds continued to climb, yields declined further, and the 10-year registered the lowest yield since 2012. The stock market, on the other hand, managed to close higher for the day.
Yields on many other government securities also stood at or near record lows, while some, such as the yield on Germany’s 10-year bond, went negative for the first time ever. Read more about The Fed Battles Economic Headwinds 06-16-16
Last Friday, the U.S. Department of Labor issued the worst jobs report since 2010. Total non-farm employment rose by an abysmal 38,000 last month. At the same time, the Labor Department lowered its estimates of hiring for both March and April, by 22,000 and 37,000, respectively.
Even the unemployment numbers were bad, despite the low headline unemployment rate of 4.7 percent. Not so fast. Actually, the percentage of the workforce officially out of work decreased thanks only to the number of people who simply quit looking for jobs, doubtless a goodly portion from mere frustration. The participation rate—the percentage of the workforce that actually has work or continues to seek it—fell to 62.6 percent, close to its 40-year low. Read more about A Question of Jobs 06-09-16
The market remained essentially flat today before tomorrow’s Department of Labor May job report. As the thinking now goes, this report could largely determine the direction of the Federal Open Market Committee (FOMC) at its June meeting. Meanwhile, according to ADP’s report, the labor market is healthier than economists had expected as private companies hired an estimated (net) 173,000 new employees last month. . This comes atop an upward revision of ADP’s initial April estimate 10,000 to 166,000.
For now, at the upcoming June FOMC meeting, Fed Funds futures traders put roughly 20 percent odds on a new rate hike of 0.25 percent, up from 5 percent odds a month ago. By the end of July, they speculate, the Fed is about 60 percent likely to have raised the rates. Read more about Jobs, Oil, and Consumer News Keeps the Market Steady 06-02-16
Perhaps appropriately, stocks celebrated a 120th anniversary of the Dow Jones Industrial Average, the first U.S. index, with a strong performance. Overall, this week has been a better week for U.S. stocks than the previous one, too: the market rallied strongly yesterday, following up on the strength on Tuesday. Commodity stocks came along for the ride, as the price of Brent crude increased yesterday to more than $50 for the first time this year. Oil has now increased some 77 percent from its low in February.
While stocks were relatively flat today, the market now seems more comfortable with the notion that the Federal Open Market Committee (FOMC) could raise interest rates this year, and even at its next regularly scheduled meeting in June. The odds, however, still suggest that policymakers will again err on the side of caution and hold rates steady at least until July, and maybe September. Read more about Happy Birthday, Dow Industrials! 05-26-16